Baroness Blatch: My Lords, I am grateful to the noble Baroness for giving way. I referred to funding per student. That has not gone up and is not likely to go up by 18 per cent in real terms.

Baroness Ashton of Upholland: My Lords, I shall happily come back to the noble Baroness with any further figures which we can debate.

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The funding gap has been raised. As the noble Lord, Lord Baker, said, that is important. We know that US universities find it easier to pay their academic staff attractive salaries. A professor at the top of an American university can expect to earn 150,000 dollars per year; up to twice the salary of his or her British counterpart. Despite the report by the Office for National Statistics which shows that more scientific professionals entered the UK in 2000 than left the country, a brain gain of 4,700, there is evidence to suggestnoble Lords will not be surprised at thisthat that masks a brain drain at the top end. Universities, above everything, are the people they employ. If we want our universities to be first class and world class, they must be able to attract and keep the best minds.

We need to be prepared to look hard at the balance between the taxpayer and the graduate. If we do not, our only choice will be to accept that the funding gap is too large for us to close. In the short term we might say we would not notice; there will not be a cliff edge. But in the long term, as noble Lords would rise as one to say, that would mean that our universities began a slow slide towards mediocrity. This Government are not prepared to accept a second-rate university sector; it is too important both for our economy and our society.

All that means that we cannot afford to close off radical options because we are afraid of what people might say when we examine them. Noble Lords will know from the press and from our debate tonight that the options we are considering are controversial. I make no apology for that.

I shall spend a moment or two on the issue raised in particular by the noble Lords, Lord Chorley, Lord Livsey and Lord Baker on pay, recruitment and retention. We recognise the achievement of higher education staff in upholding the high quality of teaching and research in our universities. We acknowledge that there is a real problem with recruitment and retention of staff. We believe we have made a start on helping higher education institutions to address those issues in the last spending review. However, we acknowledge that more needs to be done. We shall be looking to do so in the plans we announce for higher education in the new year. Those will include further resources for pay increases targeted on the recruitment and retention of staff in higher education where there is the greatest competition.

The Government have already announced that in this spending review further resources will be allocated to pay increases targeted on the recruitment and retention of staff in higher education where there is the greatest competition.

The noble Lord, Lord Watson, asked why do we not drop the target for access and expansion within universities. A number of noble Lords have queried that, and I shall make a few points on the issue. The forecast for employment over the coming decade predicts that there will be a need for more people with higher level skills. If we are to have the talented people to meet that need, we will need to offer the opportunity

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of higher education to people from all parts of society, whatever their background. At present 41.5 per cent of people enter higher education. But we are not succeeding in what we want to achieve. The gap between richer and poorer students in terms of access to higher education remains significant.

I accept what the noble Lord, Lord Wallace of Saltaire, and the noble Baroness, Lady Howe, said about the prior retainment of these young people and the issues for our school systems. Indeed, that is partly why the 14 to 19 strategy was so important. It is also why it is so important to get the Sure Start and the Early Years agenda fully working and integrated. It is also about working alongside the institutions in order to raise aspirations and to show young people from all backgrounds that higher education could be for them. I was pleased to hear the right reverend Prelate offer his support for widening access.

The Institute for Employment Research has forecast that 1.73 million new jobs requiring high-level skills between 1999 and 2010 are needed. That will represent 8 per cent of new jobs created over the period. At present 19 per cent of the UK's population is educated to degree level compared to 30 per cent in the US.

Perhaps I may humbly correct my noble friend Lord Morgan. Mr Kinnock actually said that he was the only person in a thousand generations that had gone to university.

Lord Morgan: My Lords, I was being polite to Mr Kinnock.

Baroness Ashton of Upholland: My Lords, the noble Baroness, Lady Sharp, hit on a very important point. She talked about diversity, as did the noble Lord, Lord Livsey, within higher education. That is not just about three-year degrees of the traditional kind, which perhaps many noble Lords remember and I certainly do, but also about foundation degrees. I was fortunate to go recently to Hemel Hempstead to launch the Early Years Foundation Degree. I saw a number of people, largely middle-aged womenI hope they will not mind my saying thatwho were studying for that foundation degree. They talked about the fact that they had never considered higher education. I had a letter from them this morning, which said that I should shout about its success from the rooftopsI hope noble Lords will not mind if I do precisely that. But that applies also to HNDs and other courses.

The noble Baroness, Lady Howe, talked about Open University issues and so on. The challenge is about using different ideas and a diversity of approach. I absolutely accept the point made by the noble Baroness, Lady Carnegy, about the links between further and higher education. The noble Lord, Lord Watson, raised the question of languages. It is interesting that he focused on German, which I understand from the work that I have done this week is the language most sought after by business in this country. Inclusion has been the agenda of the noble Baroness, Lady Howe, for many years. I agree with her about the need to think of early years development.

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The noble Lord, Lord Norton of Louth, asked who benefits from higher education. Both students and society benefit. We know that the private rate of return is 17 per cent for students, which is higher than in any other OECD country. One study estimated that every pound spent on research and development is worth £1.80 to the economy. But I recognise that there are different rates of return for different studentshigher for men than for women for some courses and so on.

I say to the noble Lord that we are thinking very carefully about those issues as part of the review. There is graduate premium: will more graduates mean a lower premium? The reality is that the premium has held up, despite expansion. Therefore, at the moment we can say that most graduates will indeed bring benefits to the economy and will indeed benefit from them.

The noble Baroness, Lady Carnegy, the noble Earl, Lord Mar and Kellie, and the noble Lord, Lord Sutherland, raised the question of Scotland. I say specifically to the noble Baroness, Lady Carnegy, that we will of course consult colleagues in all the devolved administrations before publishing any strategy document. My officials are already holding informal discussions. Indeed, a senior official from the department was in Scotland last week. We will therefore ensure that we have those conversations. I take on board the points made by the noble Baroness.

I am with the noble Lord, Lord Baker, in spirit in thinking that we have to look at this matter in a slightly uncomfortable waya point also made by the noble Lord, Lord Hannay. We believe that we have to look at the balance between the taxpayer, the graduatethe contributions that each makeand to recognise that we might be looking at a cultural shift, a shift that might be uncomfortable. But if they are the right things to do and they bring benefits to society and secure the future of higher education, then we must not let a little discomfort stand in our way. As every noble Lord will agree, we must plan for the long term, so we are taking stock.

Many of the points made in your Lordships' House will inform our thinking and will help us to develop a strategy. I am extremely grateful. However, as I said, the questions are difficult. We agree that students and institutions need certainty about their future more than anything, so it is right that we should work towards a firm government position in January. We hope that our strategy will be a clear blueprint for the future of the sector, so that we can make progress towards realising our shared ambition for a stronger, better funded higher education sector.

Lord Norton of Louth: My Lords, I am grateful to the Minister for answering a question that I did not ask. Will she answer the one that I did ask?

Baroness Ashton of Upholland: My Lords, I hope that the noble Lord will forgive me; I thought that I had answered his question. If not, I must answer it

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outside the Chamber. Perhaps he can ask it as a PQ or as a Starred Question. I will answer it properly then. I apologise.

The noble Lord, Lord Lucas, talked about fairness, quality and vitality. The right reverend Prelate the Bishop of Portsmouth spoke about a fair, just and sustainable system. I agree with both of those aims. I shall end with a quotation from a speech given by the noble Lord, Lord Baker of Dorking, to the University of Nottingham in November 2001. In his final words, he quoted someone else, and I agree with him. The noble Lord said:

"I would therefore urge those who want our universities to remain pre-eminent to follow Milton's advice: 'Strike high and adventure dangerously'".

I agree.

9.26 p.m.

Lord Baker of Dorking: My Lords, I thank the Minister for her generous and very good reply. It was an excellent reply to the debate. I thank all Members who have participated in what has been a debate of high excellence that could not be matched in the House of Commons.

I ask the Minister to take three short messages to Mr Clarke tomorrow. First, there is an overwhelming desire that the Government should abandon the 50 per cent target. It was expressed by the noble Lords, Lord Butler of Brockwell, Lord Watson of Richmond, Lord Desai, Lord Morgan, Lord Moser, Lord Alexander of Weedon, Lord Livsey of Talgarth, Lord Chorley, Lord Sutherland of Houndwood and Lord Brooke of Sutton Mandeville, and the noble Baroness, Lady Warnock. It is a difficult thing to abandon, but the way to do it is to announce a lower target for the two lowest socio-economic groups.

The second message is about graduate tax. Only the noble Lord, Lord Morgan, spoke for that. When he spoke, I realised how it could be killed. I was a Minister in a government who devised a very good system of local government taxation called the "community charge". Unfortunately, when it was announced, it was dubbed the "poll tax": it was dead in the water. The graduate tax is a poll tax on clever people. From now on, I shall call it the "graduate poll tax", to speed it on its way.

The third message is about public and private money. The public money people were the noble Lords, Lord Renfrew of Kaimsthorn, Lord Morgan, Lord Moser and Lord Davies of Coity. Mr Clarke will not provide the £2.5 billion extra that the noble Baroness, Lady Warnock, wants. I am afraid that it is

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not there. It will have to be private moneyflexible fees with means tests, scholarships and bursaries, as suggested by the noble Lords, Lord Butler of Brockwell, Lord Wallace of Saltaire, Lord Sutherland of Houndwood, Lord Patel, Lord Alexander of Weedon and Lord Chorley, and by the noble Baronesses, Lady Warnock, Lady Perry of Southwark and Lady O'Neill of Bengarve. That is the message. I say to the right reverend Prelate the Bishop of Portsmouth that those fees will not deter people from lower pay backgrounds. We should consider America, where blue-collar participation is so much higher.